On January 1st this year, New South Wales became the latest state to address the issue of underquoting, implementing fines of up to $22,000 and loss of commission for agents who fail to adhere to new guidelines.
The aim of course is to correct the mentality of “quote it low and watch it go” – the old con where agents effectively use bait advertising to gain buyer interest, all the while knowing their vendors are fixed on achieving a much higher price.
While I’m sure the new legislation is good news for any buyer who’s ever wasted money on a pointless building inspection, I believe there’s a far more significant problem that’s been left unaddressed. And rather than a few hundred dollars, the cost to vendors is more likely to be in the tens or even hundreds of thousands of dollars.
I’m talking about the issue of overquoting prices, to both buyers and sellers. We’re all aware of the agent who bumps up the estimated selling price in order to get the listing, knowing full well they’ll never achieve that price. There’s no real loss yet, it’s just another con. The real financial hit comes from the secondary problem ‐ where the agent uses the inflated estimate in advertising of the property, regardless of whether the property’s being sold via auction or private treaty.
The outcome of overquoting to the buyer is always the same. No buyer traffic, or the few buyers who do inspect fail to see value. Usually the agent in this scenario lets the charade continue for at least a couple of weeks before he delivers the news that the campaign is effectively a failure and begins conditioning the vendors downwards. A sale, if it comes at all, will of course be well below initial expectations. But given the all‐important early days of the campaign were effectively wasted, the price is also likely to be well below what could have been achieved otherwise.
This is why marketing a property without a price for at least the first part of the campaign is the most efficient way to achieve the best possible outcome. And to get the best of the best, this means using the auction method.
I don’t mean sticking up an auction sign and waiting for the day to roll around. I do mean following an effective auction process, which fundamentally requires extensive communication to the vendor on buyer feedback, on a daily and weekly basis, both written and verbal.
A recent report from RP Data proves my point. Drummoyne, my office’s core trade area, was listed as having the highest auction clearance rate of any suburb in Australia in the last quarter – a whopping 89.4%, compared to the depressed Sydney clearance of 59.8%. And for our office, we can even go one better, recording a clearance rate of 98.11% across all auctions in 2015.
Now who says auctions don’t work?